Central Petroleum was forced to compensate a former employee after being found to have failed to comply with the employment agreement.

The row began between Central Petroleum and the employee, Heugh, after Heugh’s duty of negotiating farmout agreements was assigned to another employee, Shortt.
Shortly after, Heugh sent Shortt two letters questioning Shortt’s professional capabilities and pressuring Shortt to reject the Central Petroleum Board’s proposal that he take on the additional responsibilities.

Consequently, the Board wrote to Heugh to notify him that his attempts to intervene with their decision placed unacceptable pressure on his colleague, and thus he had breached both his employment contract and Central Petroleum’s Code of Conduct.

The Board offered Heugh the opportunity to rectify his breaches within 14 days, providing Heugh with instructions as to how he should do so. Heugh complied with Central Petroleum’s requests; however, he failed to comply with their proposed form of apology to Shortt.

A month later the Board sought Heugh’s voluntary resignation, which he refused to provide, leading Central Petroleum to terminate his employment on the grounds that he had failed to remedy his breach. Heugh’s contract stated that if it was a reasonable response to misconduct, the company could terminate his employment.

In the trial, the Board claimed that Heugh’s failure to accept their suggested method of apology to Shortt was a sufficient reason to terminate his employment. Heugh claimed that he had in fact remedied the breaches which were alleged to be the reasons for his termination.

Justice Le Miere ruled that Heugh had complied with the demand that he should rectify his misconduct. The judge also ruled that the apology suggested by the Board was ‘grovelling’, stating that it was unreasonable to expect Heugh to demean himself.

The judge found Central to have unfairly dismissed Heugh, granting him $1.59m in compensation from Central Petroleum.

“This is a good example as to why employers should take care when drafting their senior executive contracts and ensure that when they terminate – they do so strictly in accordance with the termination provisions of the contract,” said Athena Koelmeyer, managing director of Workplace Law. “Sometimes employers fall into the habit of rolling out the same old contract they have had sitting around for every new employee without considering whether the form is out of date, whether it contains essential terms for the employment relationship or whether it actually says what they need it to say about the role.”

The consequences of the case emphasise the importance of precision in executive contracts. Employers should be vigilant in contractual wording; contractual definitions of ‘gross’ or ‘serious’ misconduct may vary from common law definitions.

“If employers do find that they have a contract like Heugh’s that possibly doesn’t give them the wide range of termination options they are looking for, it would be appropriate to obtain some legal advice about how to best terminate the contract based on the clauses you have,” Koelmeyer told HC. “As the Court pointed out in this case, there were options there for the Company, but they simply didn’t pursue them correctly.”